Time Warner Telecom has amended its $1 billion secured credit facility by reducing the line by 20% to cut excess capacity in exchange for relaxed covenants. David Rayner, senior v.p. and cfo, said the company did not see a reason to pay commitment fees on funding it was never going to need. The line was implemented in 2000 to refinance a $700 million bridge loan for the GST Telecommunications acquisition. But the credit was expanded beyond what the company ended up needing, he explained. "I didn't need the whole billion," Rayner said.
Time Warner brought the amendment to the market now in order to put the company in a better negotiating position, Rayner explained. He acknowledged existing concerns that the company's flexibility might be strapped in the future even though it presently expects to meet covenant requirements. The company did not want to wait until it was in a more compromising position to discuss an amendment. "Suddenly, I've got my back against the wall," he said, explaining what the company wanted to prevent through preemptive attention to the situation.
The reduced capacity would lower the overall interest expense on the facility, but the pricing did increase as part of the agreement, Rayner noted. The "A" term loan and revolver pricing flexed up by 75 basis points, while the "B" term loan tranche stayed the same at LIBOR plus 4%. The flexed up pieces are attached to a leverage-based grid, now ranging from LIBOR plus 13Ž 4%- 23Ž 4%, he stated. A 25 basis point amendment fee was also given to lenders. "It's a tough environment to negotiate with banks," Rayner said. "I'm not sure if telecom is liked by any lender these days," he said, verifying that the banks were still open to the agreement. The amendment had over 90% approval, he added.
The final terms of the J.P. Morgan-led facility include a $380 million revolver reduced from $475 million, a $220 million "A" term loan reduced from $275 million and a $200 million "B" term loan reduced from $250 million. He cited the company's bank debt at $420 million.